The government remains committed to decarbonising the South African economy. That is why Finance Minister Enoch Godongwana wants industry to reduce its carbon dioxide emissions.
This means the carbon tax, which was introduced in 2019, will be progressively increased and the exemptions will be reduced.
The Treasury said in the Budget Review that South Africa was committed to achieving its Nationally Determined Contribution to reduce greenhouse gas (GHG) emissions. Effective 1 January 2023, the carbon tax rate increased from R144 to R159 per tonne of carbon dioxide equivalent. To ensure transparency and provide certainty, future adjustments to the tax rate are provided in the Carbon Tax Act (2019), as outlined in the 2022 Taxation Laws Amendments Act.
In line with the carbon tax rate increase, the carbon fuel levy for 2023/24 will increase by 1c to 10 cents a litre (c/l) for petrol and 11c/l for diesel from April 5, 2023. Carbon tax cost recovery quantum for the liquid fuels refinery sector increased from 0.63c/l to 0.66c/l, effective from January 1, 2023
The first phase of the carbon tax, with substantial allowances and electricity price neutrality, will be extended to December 31, 2025. However, in line with South Africa’s commitments at COP26, the carbon tax rate will be progressively increased every year to reach $26 (R475) per tonne.
In the second phase from 2026 onwards, the carbon tax rate will have larger annual increases to reach at least $30 by 2030, and the allowances will rapidly fall away. Godongwana said he expected the tax to reach $100 by 2050.
“We urge all our companies that have not already done so to develop plans to progressively reduce their emissions over the next 10 years, otherwise they will face these steep taxes. Our exporters will also face overseas border taxes for carbon-intensive goods such as iron and steel, which will reduce their competitiveness,” Godongwana said.
South Africa is the largest greenhouse gas (GHG) emitter in Africa due to its reliance on coal-fired power stations and ranks as the 12th largest globally. South Africa has committed itself to reducing these GHG emissions and has ambitious climate change targets. These include having GHG emissions peak in 2025 at 510 million tonnes and decline thereafter to a maximum of 420 million tonnes by 2030.
These targets are in line with the 2012 National Development Plan and net zero emissions commitments by 2050. Reducing GHG emissions and adapting to climate change will involve a concerted national effort, so achieving a just transition, and promoting resilience to droughts, floods and extreme temperature change, requires the participation of all economic sectors.
BUSINESS REPORT